Warren Buffett Sends Investors a $344 Billion Warning. History Says the Stock Market Will Do This Next.
Berkshire Hathaway of Warren Buffett was a net stock seller in the second quarter, although the record was 344 billion dollars in cash and equivalent.
S&P 500 is currently a price-win (Cape), which is a 37.8-cycular valuation, which is a very expensive valuation that is less than 5% of time throughout history.
Following the events in which the monthly cloak rate of S&P 500 is measured by 37 or more, the index was usually decreased for the next, two and three years.
Warren Buffett’s Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) In the second quarter, he kept 344 billion dollars in cash and equivalent, but only shy for $ 348 billion he reported at the end of the previous period. The company was also a net stock seller for the 11th flat quarter.
Together, these capital allocation decisions mean a ruthless warning for investors: Buffett sold more shares than he bought, although he kept an investment in a close amount of investment in his company. S&P 500(Snpindex: ^Gspc) In the second quarter, it dived up to 19% from the record level.
Buffett probably sees the opportunity to purchase little compelling in the stock exchange, as the S&P 500 is historically traded in a historical expensive valuation. This applies to its own company. Buffett, then 78 billion dollars of reputation in Berkshire shares During the 24 -quarter period, he went four quarters in a consecutive quarter without taking back a single share.
What investors should know.
Image Source: Getty Images.
. CYPROWN PRICE-CAPE RATIVE It is a valuation metric used to measure whether all stock market indices are excessive or worthless. Nobel has been developed by Economist Robert Shiller during the dot-com balloon, so it is sometimes called Shiller P/E ratio.
The traditional price-winter (PE) ratio is based on earnings from the last 12 months, while the CAPE ratio is calculated by gains set according to average inflation from the last decade. This eliminates the cyclical fluctuations that occur during the business cycle to produce a more accurate picture of the valuation of an index.
The rate of 37.8 cloak at the end of July, S&P 500 was far above the historical average of 21.2. Indeed, since the rate of monthly cloaks was created in 1957, only 39 times exceeded 37 times, ie its valuation was less than 5% of time throughout history.
Unfortunately, the S&P 500 has performed historically badly under these conditions. The following graph shows the average return on different time periods following the events in which the monthly cloak ratio is measured by 37 or more.
Retention period
S&P 500 return (when the Cape ratio is 37+)
1 year
(3%)
2 years
(12%)
3 years
(14%)
Data Source: Robert Shiller.
The S&P 500, which is generally considered as the best criterion for the US stock market, has fallen by 12% until July 2027 and decreased by 14% until July 2028.
Investors should discuss Warren Buffett’s capital allocation decisions in another context. Yes, Berkshire consecutively kept a net stock seller for 11 quarters and 344 billion dollars in cash and equivalent in the balance sheet in the second quarter. These facts clearly show that Buffett hesitates to buy stocks, but some of these hesitations are probably due to the size of the company.
In detail, Berkshire Hathaway’s market value is currently exceeding $ 1 trillion and the stock portfolio is more than $ 280 billion. As a result, buying a few billion dollars of stocks will not move the financial needle for the company, which seriously limits its options while using capital to the market. Indeed, Buffett himself touched on this point.
“There is only one handful of companies in Berkshire, which really can move the needle in Berkshire, and they were selected endlessly by others,” Buffett said in 2023. “After all, there NO Probability of dazzling performance. “
Therefore, individual investors should pay attention to Buffett’s warning of 344 billion dollars to some extent, but they should not completely avoid the stock market. They were not restricted as Berkshire was restricted. In a different way, buying a few thousand dollars of stock can move the financial needle for most people, so they have much more options than Berkshire. However, considering the high valuation of the S&P 500, investors should focus on reasonable -priced stocks that they are comfortable with volatility.
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Trevor Jennewine None of the mentioned stocks have a position. Motley Fool settles in Berkshire Hathaway and recommends. Motley Fool’s Explanation policy.
